Job Market Paper

Entry Timing in the Face of Switching Costs and its Welfare Effects: Evidence from Same-Day Grocery Delivery Platforms

[SSRN Working Paper] - [Latest Draft]

The online grocery market has seen significant entry over the last five years by firms with different business models. Most firms offer subscriptions, and, in the data, consumers rarely switch between them. I find that switching costs significantly affect consumer platform choice, suggesting potential for future exercise of market power. I document the welfare impact of the acquisition of a national grocery chain by of a major online retailer and highlight the role of this feature of demand. To do so, I model competition between two large platforms. The first is the major online retailer engaging in the merger. The rival is an independent platform with low entry costs. The platforms compete in a dynamic entry game, and two opposing forces influence entry timing. On the one hand, firms chase a first-mover advantage resulting from consumer lock-in. On the other hand, I find that entry costs fall over time for both firms, leading to significant costs of early entry. I estimate that, before the acquisition, the major online retailer had very large entry costs. The acquisition reduced this cost, posing a competitive threat to the rival. Consumer lock-in then contributed to raising the stakes of early entry for both firms, accelerating entry timing by more than two years across new markets. Further, I find that a merger between the two platforms, resulting in a monopoly, would delay entry significantly. These results show that strategic competition in entry timing plays an important role in mergers' welfare effect.

Keywords: Antitrust, Digital Platform Competition, Dynamic Oligopoly, First-Mover Advantage, Switching Costs

Working Papers

The Value of Grocery Delivery and the Role of Offline Complements

[SSRN Working Paper] - [Latest Draft]

The growth of the online economy can either reinforce or attenuate disparities in access to retail depending on the nature of its interaction with consumers’ offline vicinity. This paper measures the welfare value of new online grocery services and identifies the channels through which consumers benefit from this innovation. I construct a new dataset with the roll-out of two grocery delivery platforms to show how their different delivery logistics affect consumers. I combine this geographic entry information with scanner data to estimate a demand model where consumers choose over bundles of products and retailers. I find the new services to be worth on average $120/year to users. If delivery logistics rely on partnerships with local stores, households that live close to multiple retail stores are the most likely to gain access to the new technology. This complementarity between the delivery service and the consumer’s geographic location benefits high income zip codes 34% more than low income zip codes due to differences in the supply of offline retail. On the other hand, distance to brick-and-mortar retail makes delivery a more valuable substitute to the offline economy. The value creation through this channel is 26% larger in low income zip codes compared to high income ones.

Farming Technology, Productivity and Deforestation: The Case of Crop Rotation in Brazil

Changes in cultivated area reveal important aspects of how the supply of agricultural products responds to price changes. The increasing role of crop rotation as a technology used to maximize agricultural productivity represents a significant shift in how farmers internalize production choices' long-term effects. As farmers adopt this practice and productivity of the main crop increases with diversification in production, total cultivated area expands less rapidly. To show the importance of productivity-enhancing technologies for reducing deforestation, I build a structural model of crop choice that allows for dynamic complementarity between soybeans and corn. These are the largest crops produced in Brazil and, increases in cultivated area of these products are closely tied to deforestation. Unlike static models of crop choice, the dynamic model produces positive long-run cross-price elasticities for the fraction of land cultivated with each crop. I use the estimated model to evaluate the impact of Biodiesel mandates on land use and crop supply. I find that farmers' response to mandates involves a reallocation of cropland area between crops, generating an expansion in the overall cultivated area over ten times smaller than in the absence of crop rotation. This shows the importance of technologies that lead to an internalization of environmental impact through agricultural productivity.

Work in Progress

A Method for Estimating Bounds on Switching Costs Using Intertemporal Moment Inequalities

(with Marcos Frazao)

We present a method to estimate fixed and sunk costs using moment inequalities in random utility models. This approach avoids error specification assumptions in dynamic discrete choice models where the number of alternatives is small, but the set of static choices and error dimensionality are large. Moments are constructed using revealed preference conditions on intertemporal decisions. These conditions impose bounds on continuation values. Crucially, they also impose restrictions on the set of utility shocks consistent with choices in each state. We combine these restrictions with conditional choice probabilities from frequencies in the data to generate intertemporal moment conditions for the estimation of switching and fixed costs.

Global versus Local Capital Patterns in Video Platforms

(with Joel Waldfogel)

Over the past decade or so, markets of music and movies have moved from a la carte sales of individual products to subscription sales of bundles through platforms such as Netflix, Hulu, HBO, Amazon Prime, Spotify, and Apple Music. So far, competition and firm strategies have unfolded very differently in the markets for music and video (movies and television). In music, the different platforms carry essentially identical catalogs, and with rare exceptions, the platforms do not own any content outright. In video, by contrast, platforms increasingly maintain differentiated catalogs, own much of their programming outright, and are competing on differentiated exclusive content. Major players in music, such as Spotify and Apple Music, operate in many countries around the world, as do many of the major players in video. On the one hand, an important dimension of catalog differentiation in Video is how content varies by country, allowing each platform to curate a “local capital” of content targeted to local tastes. On the other hand, the increasing amount of content produced by platforms themselves contributes to the growth of a “global capital” shared across countries. In this paper, we describe these trends in the video industry and model the platform’s choice of different forms of content capital.

Seller Reputation, Sales-Posting Quality, and Customer Reviews in Secondary Marketplaces

(Preliminary, with Amy Handlan)